By Alvin Cheng-Hin Lim

The BRICS at the Hangzhou G20 Summit

The
September 2016 meeting of the BRICS leaders — Brazilian President Michel Temer,
Russian President Vladimir Putin, Indian Prime Minister Narendra Modi, Chinese
President Xi Jinping, and South African President Jacob Zuma — which occurred
on the sidelines of the G20 Summit in Hangzhou, China, was noteworthy as it
confirmed the new Brazilian government’s commitment to the BRICS grouping.

The
new Brazilian President Michel Temer came into office following the August 31,
2016 impeachment of his predecessor Dilma Rousseff (Marcello & Boadle,
2016). During the months-long impeachment proceedings, some observers suggested
that the US was the hidden hand behind what Rousseff herself had described as a
coup d'état (Trevisani, 2016; Greenwald, Fishman & Miranda, 2016; “Is the
U.S. Backing,” 2016). Some even speculated that under the new administration,
Brazil would “say goodbye to close relations to BRICS, and say hello to close
relations with Washington” (Saxena, 2016; “Brazil’s Dilma Faces,” 2016). This
was especially since Rousseff and her predecessor Luiz Inacio Lula da Silva,
who is himself embroiled in a corruption scandal, were strong advocates of the
BRICS grouping (Escobar, 2016). The appearance of Temer at the meeting of the
BRICS leaders hence reassured observers that Brazil, for the time being at
least, has not decided to leave the grouping (Hu, 2016). The question of
Brazil’s continued commitment to the BRICS grouping will be answered again in
October 2016 when the BRICS meet in Goa, India, for their 8th annual summit (Singh,
2016; “India to host,” 2016).

In
another meeting on the sidelines of the G20 Summit, Presidents Xi and Temer
agreed to raise the comprehensive strategic partnership between their countries
to “new heights,” with a focus on “trade, energy, aviation, agriculture,
finance, infrastructure and reactions to climate change.” President Xi also
highlighted Sino-Brazilian cooperation in industrial capacity and sustainable
development, as well as the proposed Cross Andes railway megaproject that will
connect the Atlantic and Pacific oceans through Brazil and Peru (Lim, 2015; “China,
Brazil to,” 2016).

Chinese
companies including China Railway Construction Corporation are also hopeful
that the new Temer administration will revive the 400 km Sao Paulo-Rio de
Janeiro high-speed railway project, which had stalled over disagreements over
the financing arrangements. However, the project, which was originally estimated
to cost USD 11 billion, is likely to cost even more now. In addition, given
that the Brazilian economy is in recession, it is not likely that the Temer
government will decide to revive the project (Soto & Goy, 2016).

The
collapse of the Tinaco-Anaco high-speed railway project in Venezuela stands as
a warning for the ambitious Cross Andes railway and Sao Paulo-Rio de Janeiro
high-speed railway projects. Despite having constructed almost half the
project, the Chinese rail consortium had little choice but to withdraw and
count its losses due to Venezuela’s economic collapse which has left its
government unable to meet its payment schedule. The Chinese government has
reportedly held meetings with Venezuelan opposition leaders to prepare for the
possibility of regime change (Romero, 2015; Goodman, 2016).

Chinese companies are also hopeful that the new Temer
administration will revive the 400 km Sao Paulo-Rio de Janeiro high-speed
railway project.

On
the economic front, India and China have been active in their cooperation,
with, for example, both sides “signing contracts worth about $50 billion for
Chinese investments in India in the next five years.” In addition, India is the
second-largest stakeholder, just after China, in the China-led international
financial institution (IFI), the Asian Infrastructure Investment Bank (AIIB)
(Singh, 2016). However, Sino-Indian relations are not all rosy, and India has expressed
security concerns over China’s economic engagement with Pakistan. In particular
India has concerns over the China-Pakistan Economic Corridor (CPEC)
megaproject, as CPEC runs through some territory that is claimed by India, as
well as other territory which India alleges has been used by terrorist groups
(Aneja, 2016; Lim, 2016). Prime Minister Modi himself exacerbated
Indo-Pakistani tensions in August 2016 when he mentioned the peoples of
Balochistan, Gilgit-Baltistan, and Pakistan-occupied Kashmir — all of them
regions with separatist struggles — in his Independence Day address (Lee, 2016;
Shahid, 2016; “Protests erupt,” 2016).

Still,
there is hope that continued economic cooperation, and the benefits of economic
growth in the region, can further improve Sino-Indian relations, or even help
resolve the security challenges. The President of the BRICS-led New Development
Bank (NDB), K. V. Kamath, has suggested that China’s industrial overcapacity,
which has become a major challenge for China and the global economy, can in
fact be harnessed to accelerate the growth of developing countries like India,
perhaps by helping these countries increase their employment opportunities, or empower
them to ascend the ladder of industrial production and “produce high
value-added products” (Iyer, 2016). The social benefits of such economic growth
could significantly reduce the allure of terrorism or militancy among the
general population, and contribute to the expansion of peace and security in
the region.

New Development
Bank

The
NDB has quickly become one of the most visible projects of cooperation among
the BRICS countries. The NDB has approved USD 911 million in loans for its
first set of projects: a renewable energy project in each of the 5 BRICS
countries, which are all scheduled to be completed within 2 years. In contrast
to the AIIB, which has partnered with established IFIs like the World Bank and
the Asian Development Bank to finance its projects, the NDB has eschewed
co-financing for the time being on the grounds that “coordinating between
various lenders” is “time- and resource-consuming” (Wang & Feng, 2016).
However, the NDB may consider co-financing for future projects. The NDB has recently
signed a memorandum of understanding with the World Bank which “paves the way
for the two institutions to explore country-level co-operation,” including
“co-financing of projects; facilitation of knowledge exchange regarding their
operations in accordance with their respective policies and procedures;
exploring and pursuing opportunities for advisory services; and facilitating
secondments and staff exchanges” (Maswanganyi, 2016).

To
increase its capital beyond the USD 10 billion that has been raised from the
BRICS member states, the NDB has issued a “five-year yuan-denominated bond
worth 3 billion yuan ($450 million) with an interest rate of 3.07 percent,” and
it “plans to issue more bonds denominated in the currency of the target country”
(Wang & Feng, 2016). This first bond is a green bond, which means its
proceeds will finance projects concerned with environmental sustainability
(Guryanova, 2016). The NDB’s second issue of bonds will be in India (Iyer,
2016). The NDB also plans to issue bonds denominated in the ruble by the end of
2016, which will “allow the Bank to efficiently step up its operations in
Russia and the proceeds of the bond will be used for financing infrastructure
and sustainable development projects in the country” (“Bonds in Ruble,” 2016).
Unlike the AIIB, which has decided to only issue USD-denominated loans, the NDB
has already issued “a yuan-denominated loan to solar and wind power projects in
Shanghai.” In terms of its structure, while the AIIB is dominated by China,
which holds veto power over its decisions, the NDB is jointly run by the BRICS
nations, each of whom has one vote, and none of whom has veto power (Wang &
Feng, 2016).

The
NDB recently announced that it is open to offering financing to South Africa’s
state-owned enterprises (SOEs). Lesley Maasdorp, the NDB’s Chief Financial
Officer, pointed out that the NDB had been “set up to help member states,
including their public enterprises,” and as such, “South Africa’s state owned
enterprises are free to approach their bank for assistance” (“Brics bank open
for,” 2016). Should such loans be approved, however, this could raise questions
from investors about the bank’s decision-making processes, especially since two
private financing institutions have stopped offering financing to South African
SOEs due to concerns over their “governance and transparency” (“Brics bank open
to,” 2016). Loans to SOEs may also raise questions about the NDB’s commitment
to its sustainable development agenda, especially if the SOEs’ businesses do
not contribute to sustainable development (Roychoudhury & Vazquez, 2016).

By
2018 the NDB expects to expand its membership to additional countries beyond
the BRICS founding members, allowing “the bank to become a truly global player”
(Zhang, 2016). Apart from the expansion of the NDB, other initiatives the BRICS
are considering to increase their economic clout include proposals such as
“setting up a rating agency for the five-member bloc” and “issuing ‘BRICS visas’
for businesspeople and visa-on-arrival for other visitors” (Singh, 2016). Further
announcements on new directions for the BRICS may be expected at next month’s
BRICS Summit in Goa.

References

Aneja,
A. (2016, September 5). Willing to work with India, says Xi. The Hindu. Retrieved from
http://www.thehindu.com/news/national/g20-summit-willing-to-work-with-india-says-xi/article9072660.ece

Brics
bank open for SOE business says Maasdorp. (2016, September 3). SABC. Retrieved from
http://www.sabc.co.za/news/a/f1dd07804e1a93919ccbbfac4dc09bae/Brics-bank-open-for-SOE-business-says-Maasdorp-20160309

Brics
bank open to financing South Africa’s state companies: report. (2016, September
5). BusinessTech. Retrieved from
http://businesstech.co.za/news/finance/135539/brics-bank-open-to-financing-south-africas-state-companies-report/

Bonds
in Ruble to allow BRICS bank to step up operations in Russia. (2016, September
8). Sputnik. Retrieved from
https://sputniknews.com/world/20160908/1045085873/brics-bonds-ruble-bank.html

Guryanova,
A. (2016, September 1). The BRICS New Development Bank outlines its major
priorities. Russia Direct. Retrieved
from
http://www.russia-direct.org/qa/brics-new-development-bank-outlines-its-major-priorities

Is
the U.S. backing Rousseff’s ouster in Brazil? Opposition holds talks in D.C. as
Obama stays quiet. (2016, April 20). Democracy
Now. Retrieved from http://www.democracynow.org/2016/4/20/is_the_us_backing_rousseff_s

Iyer,
P. V. (2016, September 9). China oversupply can be used at home to value-add,
create jobs, says BRICS bank’s KV Kamath. The
Indian Express. Retrieved from http://indianexpress.com/article/business/banking-and-finance/china-oversupply-can-be-used-at-home-to-value-add-create-jobs-says-former-icici-bank-chairman-kv-kamath-3021181/

Maswanganyi,
N. (2016, September 9). World Bank and New Development Bank sign MOU to boost
partnership. BusinessDay. Retrieved
from
http://www.bdlive.co.za/business/2016/09/09/world-bank-and-new-development-bank-sign-mou-to-boost-partnership

Roychoudhury,
S., and Vazquez, K. C. (2016, May 9). What is new about the BRICS-led New
Development Bank? Devex. Retrieved
from
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Wang,
L., and Feng, C. (2016, September 8). AIIB Vs. NDB: Can new players change the rules
of development financing? Caixin.
Retrieved from http://english.caixin.com/2016-09-08/100986629.html

Zhang,
M. (2016, July 21). BRICS New Development Bank hopes to expand by drawing other
nations as members. South China Morning
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About The Author

Alvin Cheng-Hin Lim is a research fellow with International Public Policy Pte. Ltd. (IPP), and is the author of Cambodia and the Politics of Aesthetics (Routledge 2013). He received his Ph.D. in Political Science from the University of Hawaii at Manoa, and has taught at Pannasastra University of Cambodia and the American University of Nigeria. Prior to joining IPP, he was a research fellow with the Longus Institute for Development and Strategy.